What Happened Last Week
- Yields Fall: 10-year yields fell further as investors continued to eye an end to the crisis in the Middle East.
- AI Hardware Run: AI hardware stocks continued their historic run with names like Micron and Dell surging as much as 40%.
- Middle East Negotiations: Negotiations continued with the U.S. side seemingly indicating that talks have reached a more advanced stage.
What We’re Watching This Week
- Further Broadening: We continue to look for opportunities in the rest of the market as the historic AI run appears a bit extended.
- Labor Data: The job openings and nonfarm payrolls reports are due out this week as the last labor market releases before the June Fed meeting.
- Iran War: Renewed tensions in Lebanon and the Strait of Hormuz over the weekend are pushing oil prices off their recent lows.
Investment Management Team’s Views
AI leadership remained the primary engine of the rally, but signs of broader participation continued to emerge. The S&P 500 Index extended its winning streak to nine consecutive weeks as investors continued to reward companies tied to the AI investment cycle. Hardware names remained at the forefront, while the beleaguered Software sector joined the advance after Snowflake’s strong results helped revive sentiment for a sector that had lagged much of the year. More economically sensitive retailers, such as Dollar Tree, also rallied on strong results. In the international space, South Korea again led Emerging Markets (EM) peers, powered higher by its major chipmakers. U.S. Inflation data came in largely as expected, and first-quarter gross domestic product (GDP) was revised lower, but the market took this data in stride amid signs of progress in talks with Iran.
The outlook for energy markets remains the most important macro variable. Markets increasingly appear to be pricing a path toward de-escalation in the Middle East, with bond yields declining as investors look ahead to the possibility of a reopening of the Strait of Hormuz and lower oil prices. A sustained recovery in shipping volume would have implications far beyond crude oil prices, potentially supporting international equities, cyclicals, and other areas of the market that have lagged the AI-driven rally. While geopolitical headlines remain volatile, the recent move in rates suggests investors are becoming more focused on the economic environment that could follow the conflict rather than the conflict itself.
Over the weekend, tensions between the U.S. and Iran continued to simmer despite ongoing talks, with oil prices reacting in early trading this week. Beyond the conflict, the week ahead will bring important tests for both growth and risk appetite. Friday’s payrolls report will be the key economic release as investors assess whether labor market resilience remains intact, and what the balance of risks to labor and inflation is, heading into Kevin Warsh’s first Fed meeting later this month. Chipmaking giant Broadcom will give investors its quarterly update amid the AI hardware euphoria as earnings season comes to a close. Markets will also be watching for activity from SpaceX ahead of its expected initial public offering (IPO), which could provide a useful gauge of institutional demand for risk assets following a powerful rally in technology and AI-related equities.